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Sunday, December 7, 2008

Mumbai, Dec. 5 The capital market regulator, Securities and Exchange Board of India, has asked stock exchanges to ensure that all listed companies maintain the mandatory security deposit with them.

Under the listing agreement, companies have to deposit one per cent of the money collected from public shareholders with the exchanges as security deposit.

Of this, 50 per cent shall be made in cash and the balance can be provided as bank guarantee.

According to SEBI, in many cases bank guarantees kept with the stock exchanges by companies have expired and the exchanges had not asked them to renew such guarantees.

“By allowing the bank guarantees to expire, the stock exchanges have compromised with an important mechanism available for redressal of investor grievances,” SEBI said in a circular issued on Friday.

SEBI has asked stock exchanges to recoup immediately any shortfall in the deposit that has been caused due to the expiry of bank guarantees by taking either cash or fresh or re-validated bank guarantees from the companies concerned.

The bourses should invoke bank guarantees before it expires if any issuer company failed to meet the shortfall within the given timeframe, the circular added.

The regulator has directed the stock exchanges to keep one per cent security deposit at all times.

SEBI also told the exchanges that no adjustment of the security deposit against any dues of the company payable to the exchanges would be permitted.

The security deposit can be released by the exchanges only after obtaining a no-objection certificate from SEBI, the circular said.

The stock exchanges have also been directed to put in place a system to keep track of the bank guarantees so that bourses have sufficient time to alert the issuer companies to provide fresh or renewed bank guarantees.

The SEBI measure will fall hard on companies which had raised big amounts through IPOs and rights issues recently and are not complying with the SEBI regulations, said an analyst.